Australian employment growth is slowing

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  • Australian employment growth is slowing sharply after a very strong period in 2017.
  • Employment grew by just 4,900 in March following a 6,300 decline in February.
  • Unemployment held steady at 5.5%, still well above the 5% level where wage pressures are expected to build.

Australian employment growth is slowing sharply in early 2018.

According to the Australian Bureau of Statistics (ABS), employment rose by 4,900 in seasonally adjusted terms, missing expectations for an increase of 20,000.

Full-time employment fell by 19,900 to 8.51 million, masked by an increase in part-time employment which rose by 24,800 to 3.9 million. Combined, total employment now stands at 12.484 million.

By state and territory, the ABS said employment rose by 26,400 in Victoria, offsetting declines of 6,500, 6,100 and 1,600 in New South Wales, South Australia and Western Australia.

Mirroring the small increase in employment, total hours worked increased by 4.5 million hours to 1.74 million hours. This followed an increase of 22 million hours in February.

On top of the underwhelming March employment result, February’s figure, originally reported as a gain of 17,750, was revised down to show a decline of 6,300.

It was the first drop in employment since September 2016.

As such, Australia’s record streak of consecutive monthly employment growth is now over. Rather than 17 months, the record books will now show 16 straight months of job gains, without any further adjustments from the ABS, of course.

Adding to the confusion, employment growth in January was revised up to show an increase of 37,400, well above the 12,500 increase originally reported.

Over the year, full-time employment increased by 226,900, outpacing a 140,200 lift in part-time workers. Combined, total employment rose by a still-brisk 367,100.

However, annual employment growth has now fallen the high of 431,000 set in January this year.

Better demonstrating the scale of the recent employment slowdown, monthly growth in the ABS’ trend employment reading fell to 14,000 in March. Less than a year ago, monthly growth stood at nearly 42,000.

The trend reading is favoured by some economists as it reduces volatility in the seasonally adjusted data.

Despite the large miss in employment growth and downward revision to February’s result, the unemployment rate held steady at 5.5%, in line with market expectations.

The lack of movement was due to a dip in labour force participation which fell from 65.6% to 65.5%.

According to the ABS, the size of Australia’s labour force — measuring the number of Australians in employment or who are actively seeking work — rose by 2,500 to 12.221 million.

With employment increasing by 4,900 over the same period, that saw the total number of unemployed Australians fall by 2,400 to 730,200.

February’s unemployment rate of 5.6% was revised down by 0.1 percentage points to 5.5%. The participation rate was also revised lower from 65.7% to 65.6%.

Unemployment has now held at 5.5% for three consecutive months, still well above the 5% level many believe it will need to fall to before wage pressures begin to build.

This table from the ABS shows the breakdown of unemployment by state and territory.

Source: ABS

The employment-to-population ratio — measuring the percentage of Australians of working age who are in employment — fell by 0.1 percentage points to 61.9%. Over the past year it has increased by 0.8 percentage points, meaning more Australians of working age are in employment.

Callam Pickering, APAC Economist for global job site Indeed, said that Australian employment growth is now starting to moderate after “remarkable” period in 2017.

However, at this point, he remains reluctant to declare that the slowdown is the start of something more sinister.

“We consider it too early to declare whether the labour market has taken a turn for the worst — since employment growth during 2017 was clearly unsustainable — but policymakers will be closely watching the figures,” he said.

In particular, he cautioned that with so many people joining the workforce at present, the employment slowdown — if sustained — could see unemployment lift in the period ahead.

“It is quite a remarkable achievement (the lift in participation) given the presence of an ageing population. However, it is also the reason why the unemployment rate remains high and hasn’t fallen as much as you might expect,” he said.

“With employment growth now slowing, there is a risk that the unemployment rate shifts upward during 2018.”

Like Pickering, Kate Hickie, Australia and New Zealand Economist at Capital Economics, doesn’t think the slower pace of hiring is reason for concern — yet.

“While there has been a modest softening in some labour market indicators recently, most remain well above average and don’t suggest that this will mark the start of a period of notably weaker employment growth,” she said.

However, while she thinks the outlook for hiring still looks pretty robust, that optimism does not extend to the prospects for larger pay increases.

“There is still quite a lot of spare capacity in the labour market,” she said.

“Even if employment growth returns to more normal levels in the coming months, given the amount of slack in the labour market, this is unlikely to generate much of a pick-up in wage growth above its current subdued rate of 2.1%.”

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